Thursday, October 24, 2013
"Earning Zero is the Best Investment"
When is earning zero the best investment? When you're expecting the US stock market to reverse by 40%. Mark Spitznagel doesn't believe there needs to be a "catalyst" like the end of QE or even a tapering (which will likely never come).
As Bartiromo mentions, Spitznagel had 100% return in 2008 while markets were down by a third. He also recognizes that people in cash feel "foolish" as the market heads higher. But he also recognizes the gains are illusory. Few will have the timing to get out before the market sours and sentiment changes.
Being positioned in cash will allow you the extraordinary opportunity to go on a discount shopping spree when there are ten sellers for every buyer. These are the times that long lasting wealth is created. Retail investors should watch SDY, an ETF made up of large blue chip US companies with proven track records of steadily increasing dividend payments. As of today, its yield is 2.45%. When it starts to approach 5% in a sell off (The yield rises as the price goes down) it will be a good time to buy
Its is exactly these times of crisis that Warren Buffet has stepped in with his cash rich insurance fund to buy at deep discounts. This will also be the time that retired Americans who have suffered under the Fed's financial repression will finally be able to buy investments, including stocks, with high yields to fund their retirements. Few will be ready.